Fund Profile

Henderson European Focus Trust 02 February 2022

Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Henderson European Focus Trust. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

Overview
HEFT’s stylistic balance has allowed it to outperform over myriad market environments, yet it trades at an attractive discount…
Overview

Henderson European Focus Trust (HEFT) offers investors a differentiated portfolio of European equities, with its managers John Bennett and Tom O’Hara aiming to produce a stylistically balanced portfolio. We note that Tom has taken an increased role in managing the trust’s relationship with its board and shareholders, as we describe under Management.

HEFT has long held an overall ‘core’ style, with the managers preferring to invest in companies which can benefit from positive changes in their circumstances. The team have long been cautious of the dominance of growth investing and are increasingly aware of the impact that rising bond yields may have on the style, intentionally avoiding expensive growth stocks as a result. HEFT’s main exposure remains to companies which have a clear capacity to capitalise on the post-pandemic consumer recovery. This positions HEFT towards consumer, energy and travel stocks, as we describe in the Portfolio section.

HEFT has outperformed its benchmark, the FTSE World Europe ex UK Index, over both a five-year and 12-month period. HEFT has also outperformed its peers over the last 12 months, being better positioned to weather the recent market turmoil. Over the long term HEFT has also been able to avoid many of the headwinds facing either European growth or value investors. This is one of the aims of the team’s investment philosophy, as we outline in the Performance section.

The trust has recently introduced €35m structural Gearing, which may potentially enhance the trust’s long term returns for equity holders. HEFT continues to trade at a wide Discount, 11.5% currently, wider than its peers and its own five year average of 7.2%. In our view, this reflects investors’ recent aversion to the European sector and preference for growth stocks, though this may be set to change given the current market environment.

Analyst's View

We believe that HEFT offers an interesting option for European equity investors, as the team’s stylistically balanced approach may soon come into favour. Thanks to the combination of the COVID-19 recovery and supply chain shocks we are already seeing see a resurgence in inflation, which may bring an end to the dominance of growth investing given its upwards pressure on bond yields and negative impact on the ‘long duration’ trade. If investors believe that such a scenario is likely in the near term, then they may find themselves aligned with the views of the team behind HEFT, who continue to look for signs of a material rise in bond yields and the opportunity to reposition accordingly. Likewise, more cautious investors who do not want to be exposed to extreme valuations may also find HEFT an attractive choice given the managers’ intentional avoidance of both expensive growth and deep value stocks.

We also believe that the team’s approach to ESG integration may be a refreshing alternative for investors who feel that the market has been too heavy-handed in its application. The team’s willingness to invest in some of the less ESG compliant industries, albeit in the more ESG-compliant companies within these industries – may align with some investors’ views while also offering a differentiated potential source of alpha. We note the managers do believe though that the direction of travel in ESG is worth considering in investment decisions. We are also encouraged by the gradual shift in the responsibilities of the management team, indicating a willingness for a well-managed transition between the two managers, and the team approach.

bull bear
Discount may offer an attractive entry point
May not fully capitalise on periods of strong growth or value stock momentum
Offers a balanced approach which has outperformed the benchmark over the long term
The use of gearing can enhance losses on the downside, though the recently issued debt is less than 8% of NAV
Managers have avoided the major stylistic headwinds over the last decade
Allocation to oil majors and cement manufacturers may be unpalatable to investors with explicit ESG screens
Continue to Portfolio

Fund History

25 May 2022 Results analysis: Henderson European Focus Trust
HEFT has shown strong resilience despite the headwinds facing Europe, thanks to a committed valuation discipline…
25 Mar 2022 Slides and Audio: Henderson European Focus Trust
Download the presentation and listen to the audio from our 'Ideas for your ISA' virtual Spring event on 15 March...
23 Mar 2022 Fifteen ideas for your ISA
Slides and audio from our event last week, featuring fund managers running money in every major market in the world...
02 Feb 2022 Fund Analysis
HEFT’s stylistic balance has allowed it to outperform over myriad market environments, yet it trades at an attractive discount…
08 Dec 2021 Results analysis: Henderson European Focus Trust
HEFT has delivered solid NAV returns this year, and shareholder returns have been buoyed by a closing discount…
09 Sep 2021 What next for European equities?
After a strong period for European equity markets, we ask whether this trend can continue…
10 Jun 2021 Fund Analysis
HEFT offers investors flexible exposure to Europe, with a current tilt toward value supporting the potential for returns…
27 May 2021 Results analysis: Henderson European Focus Trust
HEFT is positioned for the next leg of Europe’s pandemic recovery, having outperformed its benchmark over the last six months…
19 Aug 2020 Has the time come for Europe?
With mutual eurozone debt established all eyes are on the continent once more; but what will drive relative returns?
11 May 2020 Kepler Rated: Henderson European Focus
HEFT offers a well concentrated portfolio of high quality European companies…
27 Jan 2020 Fund Analysis
HEFT’s wide discount offers an attractive entry point into an increasingly actively managed portfolio…
24 Apr 2019 Nothing compares to EU
Currently one of the financial world's most unloved regions, we look at the sectors that are unique to Europe and how the persistent pessimism has presented attractive opportunities…
View all

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